Life insurance buyers aren’t the only ones frustrated by a long wait between purchase and policy delivery, so are advisors. In the modern era, a buying process that can take weeks to months to complete is increasingly unsatisfactory to all involved. Especially during a global pandemic, when interest in — and need for — life insurance coverage has been trending higher.
The traditional life insurance distribution lifecycle is slow and cumbersome, but technological advances have been steadily decreasing the timeline. Self-service tools such as calculators and quoting engines are reducing lead times for advisors, and eApps can make it easier for advisors to manage the end-to-end distribution process. In fact, insurance carriers and distributors that do not offer digital services are increasingly at a competitive disadvantage. Moreover, those that aren’t using technology to accelerate underwriting may fall even further behind the curve.
The Waiting is the Hardest Part (and not just for Tom Petty and The Heartbreakers)
There are several points of friction in the traditional life insurance value chain, and it’s important to consider all of them in your digital transformation strategy, even if you don’t tackle them all at the same time. Given the complexity and distinctive nature of each carrier’s life insurance underwriting process, there isn’t going to be a one-size-fits-all technology solution. But it is precisely these variabilities in underwriting rules that technology is uniquely able to process in a more timely, efficient, and error-proof manner.
We’ve seen the impact of automated underwriting in the property and casualty (P&C) space, as demonstrated by the rapid rise of Lemonade, Root, and others. While the P&C underwriting process isn’t necessarily as complicated as it is for life insurance, the fundamentals are the same: collect lots of data, apply assessment rules and statistical analysis (typically using algorithms, machine learning and/or artificial intelligence), and determine the next steps. In some cases that might be issuing coverage on the spot and in others, referring the application for more extended analysis.
It’s the Data, Duh
The main advantage that Lemonade and Root have over incumbent insurance carriers is the ability to collect and leverage data throughout the buying processes. While traditional insurers undoubtedly have collected more data over time, it’s not easy to put that data to work with automation because it is often held in disparate legacy systems or file drawers. The reality is that any data advantage the incumbents may have had is also rapidly declining as more of the buying process moves online.
This is why we counsel our partners to evaluate the entire life insurance distribution lifecycle rather than looking at different projects as a one-off. Insurers need to consider how data is collected, enhanced with third-party sources, and used to automate decision points across the entire value chain to fully realize the potential of digital transformation, not just automated underwriting.
Build or Buy…?
Because underwriting is such a unique process for most insurers, many are inclined to assume that automating the process must be done internally to achieve the desired result. For those folks, it’s important to remember that “perfection is the enemy of the good.”
Today there are InsurTech specialists that already have the infrastructure needed to automate many underwriting processes, allowing incumbents to save the time and resources for other pressing business problems. Moreover, a modern underwriting engine is much more likely to “play nicely” with other third-party systems in the distribution lifecycle, meaning underwriting decisions can be put to use more quickly and efficiently.
That’s a time advantage with dual benefits. Insurance consumers won’t have to wait weeks for a policy decision, and advisors won’t get stuck selling cumbersome products.
Ian Jeffrey is the chief executive officer of Breathe Life.